Stockholm is the capital and the largest city of Sweden and constitutes the most populated urban area in Scandinavia. Stockholm is the most populous city in Sweden, with a population of 851,155 in the municipality , 1.37 million in the urban area , and around 2.1 million in the metropolitan area...

Stocksund is an upper-class or upper middle-class suburb in Metropolitan Stockholm, Sweden.Located immediately across the Edsviken from Bergshamra, Stocksund is one of four parts of Danderyd Municipality north of Stockholm....

Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

The Stockholm school, or Stockholmsskolan, is a school of economic thought whose antithesis is the gold standard centered Austrian School of Economics. It refers to a loosely organized group of Swedish economists that worked together, in Stockholm, Sweden primarily in the 1930s...

Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

schools of economic thought.

Biography

Wicksell was born in Stockholm, Sweden on December 20, 1851. His father was a relatively successful businessman and real estate broker. He lost both his parents at a relatively young age—his mother died when he was only six years old, and his father died when he was fifteen. His father's considerable estate allowed the now fatherless child to enroll at the University of Uppsala in 1869 to study mathematics

Mathematics

Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...

Physics is a natural science that involves the study of matter and its motion through spacetime, along with related concepts such as energy and force. More broadly, it is the general analysis of nature, conducted in order to understand how the universe behaves.Physics is one of the oldest academic...

. He received his first degree in two years, but continued in graduate studies until 1885 when he received his doctorate in mathematics. In 1887, Wicksell received a scholarship to study on the continent where he heard lectures by the economist Carl Menger

Carl Menger

Carl Menger was the founder of the Austrian School of economics, famous for contributing to the development of the theory of marginal utility, which contested the cost-of-production theories of value, developed by the classical economists such as Adam Smith and David Ricardo.- Biography :Menger...

Vienna is the capital and largest city of the Republic of Austria and one of the nine states of Austria. Vienna is Austria's primary city, with a population of about 1.723 million , and is by far the largest city in Austria, as well as its cultural, economic, and political centre...

. In the following years, his interests began to shift toward the social sciences, and in particular, economics.

As a lecturer at Uppsala, Wicksell had attracted attention for his opinions about labor. At one lecture, he condemned drunkenness and prostitution as alienating, degrading, and impoverishing. Although he was sometimes identified as a socialist, his solution to the above problem was decidedly Malthusian

Thomas Malthus

The Reverend Thomas Robert Malthus FRS was an English scholar, influential in political economy and demography. Malthus popularized the economic theory of rent....

in advocating birth control – a theory he would defend to the end of his life. Although he had attracted some attention for his fiery ideas, his first work in economics, Value, Capital and Rent, published in 1892, was largely unnoticed. In 1896, he published Studies in the theory of Public Finance, applying the ideas of marginalism

Marginalism

Marginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity...

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...

s, and other aspects of public policy, attracting considerably more interest.

Anna Wicksell Bugge was a Norwegian feminist. She helped found the debate society Skuld in high school...

, in 1887, although he found it difficult to support his family on his irregular positions and publications. Economics in Sweden at the time was taught as part of the law school and Wicksell was unable to gain a chair as a professor until he was awarded a law degree. He returned to the University of Uppsala where he completed a four-year law degree in two years, and subsequently became an associate professor at that university in 1899. The next year, he became a full professor at Lund University

Lund University

Lund University , located in the city of Lund in the province of Scania, Sweden, is one of northern Europe's most prestigious universities and one of Scandinavia's largest institutions for education and research, frequently ranked among the world's top 100 universities...

The Immaculate Conception of Mary is a dogma of the Roman Catholic Church, according to which the Virgin Mary was conceived without any stain of original sin. It is one of the four dogmata in Roman Catholic Mariology...

Blasphemy is irreverence towards religious or holy persons or things. Some countries have laws to punish blasphemy, while others have laws to give recourse to those who are offended by blasphemy...

and imprisoned for two months. Eight years later, in 1916, Wicksell retired from his post at Lund and took a position at Stockholm advising the government on financial and banking issues. In Stockholm, Wicksell associated himself with other future great economists of the so-called "Stockholm School," such as Bertil Ohlin

Bertil Ohlin

Bertil Gotthard Ohlin was a Swedish economist and politician. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. He was also leader of the People's Party, a social-liberal party which at the time was the largest party in opposition to the governing Social...

Karl Gunnar Myrdal was a Swedish Nobel Laureate economist, sociologist, and politician. In 1974, he received the Nobel Memorial Prize in Economic Sciences with Friedrich Hayek for "their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the...

Dag Hjalmar Agne Carl Hammarskjöld was a Swedish diplomat, economist, and author. An early Secretary-General of the United Nations, he served from April 1953 until his death in a plane crash in September 1961. He is the only person to have been awarded a posthumous Nobel Peace Prize. Hammarskjöld...

, the future Secretary-General of the United Nations.

Wicksell died in 1926 while writing a final work on the theory of interest. Elements of his public policy were taken strongly to heart by the Swedish government, including his price-level targeting rule during the 1930s (Jonung 1979), and also his vision of a limited welfare state

Welfare state

A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...

. Wicksell's contributions to economics have been described by some economists, including historian-of-economics

History of economic thought

The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...

Mark Blaug , was a British economist , who has covered a broad range of topics over his long career. In 1955 he received his PhD from Columbia University in New York under the supervision of George Stigler...

Michael Dean Woodford is an American macroeconomist and monetary theorist who currently teaches at Columbia University.-Academic career:...

has especially praised Wicksell's advocacy of using the interest rate to maintain price stability, noting that this was a remarkable insight at a time when most monetary policy was based on the gold standard

Gold standard

The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

(Woodford, 2003, p. 32). Woodford calls his own framework 'neo-Wicksellian', and he titled his textbook on monetary policy in homage to Wicksell's work.

The Lausanne School of economics, sometimes referred to as the Mathematical School, refers to the neoclassical economics school of thought surrounding Léon Walras and Vilfredo Pareto. The central feature of the Lausanne School was its development of general equilibrium theory...

The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...

, and sought a synthesis of the three theoretical visions of the economy. Wicksell's work on creating a synthetic economic theory earned him a reputation as an "economist's economist." For instance, although the marginal productivity theory—the idea that payments to factors of production

Factors of production

In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...

equilibrate to their marginal productivity—had been laid out by others such as John Bates Clark

John Bates Clark

John Bates Clark was an American neoclassical economist. He was one of the pioneers of the marginalist revolution and opponent to the Institutionalist school of economics, and spent most of his career teaching at Columbia University.-Biography:Clark was born and raised in Providence, Rhode...

, Wicksell presented a far simpler and more robust demonstration of the principle, and much of the present conception of that theory stems from Wicksell's model.

Extending from Ricardo's investigation of income distribution, Wicksell concluded that even a totally unfettered economy was not destined to equalize wealth as a number of Wicksell's predecessors had predicted. Instead, Wicksell posited, wealth created by growth would be distributed to those who had wealth in the first place. From this, and from theories of marginalism

Marginalism

Marginalism refers to the use of marginal concepts in economic theory. Marginalism is associated with arguments concerning changes in the quantity used of a good or service, as opposed to some notion of the over-all significance of that class of good or service, or of some total quantity...

, Wicksell defended a place for government intervention to improve national welfare. Wicksell influenced the field of constitutional political economy. His 1896 work on fiscal theory Finanztheoretische Untersuchungen called attention to the significance of the rules within choices are made by political agents, and he recognized that efforts at reform must be directed toward changes in the rules for making decisions rather than trying to influence the behaviour of the actors.

Wicksell's most influential contribution was his theory of interest, published in his 1898 work, Interest and Prices. He made a key distinction between the natural rate of interest and the money rate of interest. The money rate of interest, to Wicksell, was merely the interest rate seen in the capital market

Capital market

A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...

; the natural rate of interest was the interest rate that was neutral to prices in the real market, or rather, the interest rate at which supply and demand

Supply and demand

Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

in the real market was at equilibrium – as though there were no need for capital markets. This connected to the theory of the Austrian School

Austrian School

The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

, which theorized that an economic boom happened when the natural rate of interest was higher than the market rate.

This contribution, called the "cumulative process," implied that if the natural rate of interest was not equal to the market rate, demand for investment and quantity of savings would not be equal. If the market rate is beneath the natural rate, an economic expansion occurs, and prices, ceteris paribus

Ceteris paribus

or is a Latin phrase, literally translated as "with other things the same," or "all other things being equal or held constant." It is an example of an ablative absolute and is commonly rendered in English as "all other things being equal." A prediction, or a statement about causal or logical...

In economics, endogenous money refers to the theory that money comes into existence driven by the requirements of the real economy and that banking system reserves expand or contract as needed to accommodate loan demand at prevailing interest rates. It forms part of Post-Keynesian economics...

– money created by the internal workings of the economy, rather than external factors, and various theories of endogenous money have since developed.

The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

based on central bank policy – changes in the level of money in the economy would shift the market rate of exchange in some way relative to the natural rate, and thus trigger a change in the relative proportion of the production of consumer goods to investment, which would ultimately result in an economic correction, or recession, in which the proportion of production of consumption goods to investment in the economy is pushed back towards the level that the natural rate of interest would result in. The cumulative process was the leading theory of the business cycle until John Maynard Keynes

John Maynard Keynes

John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

' The General Theory of Employment, Interest, and Money. Wicksell's theory would be a strong influence in Keynes's ideas of growth and recession, and also in Joseph Schumpeter

Joseph Schumpeter

Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...

Creative destruction is a term originally derived from Marxist economic theory which refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto and were expanded in Marx's Grundrisse and "Volume...

Irving Fisher was an American economist, inventor, and health campaigner, and one of the earliest American neoclassical economists, though his later work on debt deflation often regarded as belonging instead to the Post-Keynesian school.Fisher made important contributions to utility theory and...

In monetary economics, the quantity theory of money is the theory that money supply has a direct, proportional relationship with the price level....

, resting it almost exclusively on long run prices. Wicksell's theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy. Although both economists concluded from their theories that at the heart of the business cycle (and economic crisis) was government monetary policy, their disagreement would not be solved in their lifetimes, and indeed, it was inherited by the policy debates between the Keynesians and monetarists beginning a half-century later.

Wicksell also expressed his views on many social issues and was often a critic of the status quo. He questioned the institutions of rank, marriage, the church, the monarchy, and the military. While Wicksell fought for a more equal distribution of wealth and income, he saw himself primarily as an educator of the public. He desired to influence more than just the field of monetary economics.

Economists influenced by Knut Wicksell

John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

Karl Gunnar Myrdal was a Swedish Nobel Laureate economist, sociologist, and politician. In 1974, he received the Nobel Memorial Prize in Economic Sciences with Friedrich Hayek for "their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the...

Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...

Bertil Gotthard Ohlin was a Swedish economist and politician. He was a professor of economics at the Stockholm School of Economics from 1929 to 1965. He was also leader of the People's Party, a social-liberal party which at the time was the largest party in opposition to the governing Social...

James McGill Buchanan, Jr. is an American economist known for his work on public choice theory, for which he received the 1986 Nobel Memorial Prize in Economic Sciences. Buchanan's work initiated research on how politicians' self-interest and non-economic forces affect government economic policy...

is a Japanese economist and critic. He has studied the theory of money, macro dynamics, evolutionary economics, philosophy of corporation, fiduciary law, and history of social thoughts. His work includes the book, Disequilibrium Dynamics , and many articles published in academic journals...

Schools of thought influenced by Knut Wicksell

Neo-Keynesian economics is a school of macroeconomic thought that was developed in the post-war period from the writings of John Maynard Keynes. A group of economists , attempted to interpret and formalize Keynes' writings, and to synthesize it with the neo-classical models of economics...

Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...

Monetarism is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation. It is the view within monetary economics that variation in the money supply has major influences on national output in the short run and the price level over...

The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...

The Stockholm school, or Stockholmsskolan, is a school of economic thought whose antithesis is the gold standard centered Austrian School of Economics. It refers to a loosely organized group of Swedish economists that worked together, in Stockholm, Sweden primarily in the 1930s...

Works

The Ludwig von Mises Institute , based in Auburn, Alabama, is a libertarian academic organization engaged in research and scholarship in the fields of economics, philosophy and political economy. Its scholarship is inspired by the work of Austrian School economist Ludwig von Mises...